eMagin Corporation Announces First Quarter 2018 Financial Results

- Posts 13% Revenue Growth in Q1; 20% Increase in Backlog from Year
End -

May 10, 2018 07:30 AM Eastern Daylight Time

HOPEWELL JUNCTION, N.Y.--(BUSINESS WIRE)--eMagin Corporation, or the “Company”, (NYSE American: EMAN), a
leader in the development, design and manufacture of Active Matrix OLED
microdisplays for high resolution imaging products, today announced
financial results and corporate highlights for the first quarter ended
March 31, 2018.

“We had a strong start to the year for our commercial initiatives as
well as our military programs,” said Andrew Sculley, President and Chief
Executive Officer. “In addition, we are making important strides in our
manufacturing processes that have contributed to improvement in yields
and increased throughput.”

“We are seeing broader, accelerating interest within the consumer AR/VR
market. New opportunities continue to surface for our high brightness,
direct patterned OLED microdisplays. Consistently, we hear from
prospects in the consumer segment that our cutting-edge technology is a
key enabler for next generation HMD products,” continued Mr. Sculley. “I
am happy to say that the design of our next generation display is on
track and going well. We look forward to having prototypes available for
customers by year end 2018 or early 2019.

“As we work with our prospective manufacturing partners and our consumer
electronics OEMs, our focus remains on identifying the optimal business
structure to scale our direct patterning (dPdtm) technology
and best capitalize on the consumer AR/VR market opportunity. This will
enable us to achieve the broadest application of our dPd technology in
the marketplace.

“Our military business continues to grow, and we saw increased bookings
from our U.S. programs as well as from foreign military customers. At
March 31st, our product backlog was $11.8 million, an
increase of over 20% from the $9.8 million backlog at December 31, 2017.
We are supporting many programs that the US military considers to be of
high importance including applications for night vision, thermal weapon
sights, see-through HMD systems for mounted and dismounted missions as
well as aviation helmet upgrades and prototypes for next generation
helmet systems.

“We are continuing to make progress in our development of very high
brightness full-color microdisplays incorporating our dPd technology. To
this end, we are designing further improvements to lengthen the lifetime
of our microdisplays and incorporating enhancements to our equipment to
improve our production yields and expand our manufacturing capacity.

“The response to our micro displays has been overwhelmingly positive.
Demand for our products remains strong both domestically and
internationally. This is leading to more orders and requests for
accelerated deliveries across the board,” concluded Mr. Sculley.

Business and Product Highlights

We are continuing to optimize our dPd technology and having previously
demonstrated maximum brightness of more than 5,300 nits, we have
recently achieved greater than 7000 nits while reducing power
consumption by 20%.

We are advancing discussions with multiple consumer electronics
partner prospects regarding eMagin’s next generation microdisplays for
AR/VR applications. Additionally, we received an inquiry from two
additional prospective Tier 1 customers about designing and developing
displays.

We expanded discussions on mass production for the commercial market
and included an additional potential partner in those discussions.

We accelerated shipments for multiple international customers as
business activity increases.

We are expanding our business development initiatives internationally
and pursuing new markets in Asia where we have not been as active. In
April we participated in the DefExpo 18 India trade show where our
microdisplays received strong interest from defense and commercial
customers in the rapidly growing Indian market.

We are on schedule with the OLED upgrade to a production helmet for a
multi-service, multi-country, fixed wing aircraft program. Additional
displays for pre-production testing will be delivered in the second
quarter with deliveries of displays for flight testing expected in the
fourth quarter. We are receiving positive feedback on the performance
of this OLED helmet during qualification and flight testing.

Quarter Results

Revenues for the first quarter of 2018 grew 13% to $6.9 million, an
increase of $0.8 million from revenues of $6.1 million reported a year
ago and up sequentially by $0.5 million from the fourth quarter of 2017.

Product revenues increased 34% to $5.9 million compared to $4.4 million
in the first quarter of 2017. The year-on-year increase in product
revenue was due to an increase in display revenues from the ramp up of
new U.S. military programs and increased demand by international
customers. Contract revenues totaled $1.0 million in the first quarter
compared to $1.7 million in the same quarter of last year. The current
quarter’s revenues were from a number of customers whereas the prior
year’s contract revenues were primarily from one consumer customer.

Overall gross margin for the first quarter was 29% on gross profit of
$2.0 million compared to a gross margin of 30% on gross profit of $1.8
million in the prior year period. The decrease in gross margin was
primarily due to higher unit material costs in the 2018 quarter and
lower contract revenues in the quarter on which the Company generally
earns a higher gross margin.

Operating expenses for the first quarter of 2018, including R&D
expenses, were $4.5 million as compared to $3.8 million in the first
quarter of 2017. Operating expenses as a percentage of sales were 66% in
the first quarter compared to 63% a year ago. The increase in operating
expenses was due to higher R&D expenses associated with the development
of the Company’s dPd and XLS process technologies, as well as greater
spending on professional services, legal and travel expenses for
negotiations with prospective consumer electronics customers and volume
manufacturing partners. Also included in operating expenses were
approximately $240 thousand for transaction fees incurred in the January
2018 offering which were associated with the fair value of the warrant
liability.

Operating loss for the first quarter was $2.6 million versus an
operating loss of $2.0 million in the first quarter of last year. Net
loss for the first quarter of 2018 was $2.1 million, or $0.05 per
diluted share, compared to a net loss of $2.0 million, or $0.06 per
diluted share, in the first quarter of 2017.

As of March 31, 2018, the Company had cash and cash equivalents of $9.8
million, working capital of $16.5 million, and borrowing availability
under the ABL facility of $4.4 million.

Conference Call Information

A conference call and live webcast will begin today at 9:00 am ET. An
archive of the webcast will be available one hour after the live call
through June 10, 2018. To access the live webcast or archive, please
visit the Company’s website at ir.emagin.com or www.earnings.com.

About eMagin Corporation

A leader in OLED microdisplay technology, OLED microdisplay
manufacturing know-how and mobile display systems, eMagin manufactures
high-resolution OLED microdisplays and integrates them with magnifying
optics to deliver virtual images comparable to large-screen computer and
television displays in portable, low-power, lightweight personal
displays. eMagin’s microdisplays provide near-eye imagery in a variety
of products from military, industrial, medical and consumer OEMs. More
information about eMagin is available at www.emagin.com.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, including those regarding eMagin
Corporation’s expectations, intentions, strategies and beliefs
pertaining to future events or future financial performance. Actual
events or results may differ materially from those in the
forward-looking statements as a result of various important factors,
including those described in the Company’s most recent filings with the
SEC. For a more complete description of the risks that could cause our
actual results to differ from our current expectations, please see the
section entitled “Risk Factors” in eMagin’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2017.

Non-GAAP Financial Measures

To supplement the Company’s consolidated financial statements presented
on a GAAP basis, the Company has provided non-GAAP financial
information, namely earnings before interest, taxes, depreciation and
amortization, and non-cash compensation expense (“Adjusted EBITDA”). The
Company’s management believes that this non-GAAP measure provides
investors with a better understanding of how the results relate to the
Company’s historical performance. The additional adjusted information is
not meant to be considered in isolation or as a substitute for GAAP
financial statements. Management believes that these adjusted measures
reflect the essential operating activities of the Company. A
reconciliation of non-GAAP financial information appears below.

EMAGIN CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

March 31,

December 31,

2018

2017

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

9,802

$

3,526

Accounts receivable, net

4,138

4,528

Unbilled accounts receivable

526

406

Inventories

8,947

8,640

Prepaid expenses and other current assets

1,115

1,328

Total current assets

24,528

18,428

Equipment, furniture and leasehold improvements, net

8,150

8,553

Intangibles and other assets

363

326

Total assets

$

33,041

$

27,307

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

1,696

$

1,714

Accrued compensation

1,472

1,557

Revolving credit facility, net

—

3,808

Common stock warrant liability

3,187

784

Other accrued expenses

1,134

719

Deferred revenue

188

765

Other current liabilities

365

469

Total current liabilities

8,042

9,816

Commitments and contingencies (Note 9)

Shareholders’ equity:

Preferred stock, $.001 par value: authorized 10,000,000 shares:

Series B Convertible Preferred stock, (liquidation preference of
$5,659) statedvalue $1,000 per share, $.001 par value:
10,000 shares designated and 5,659issued and outstanding as
of March 31, 2018 and December 31, 2017